Bill Nygren is the portfolio manager of The Oakmark Fund, The Oakmark Select Fund and The Oakmark Global Select fund. Oakmark’s partners are value investors who invest in companies that trade at a steep discount to their estimated true business value, have strong free cash flows and intelligent investment of excess cash, and a high level of manager ownership. In his first quarter letter to investors, Nygren shared that he believes value investing can include looking for higher growth businesses if the price for growth has declined. In his search for cheap but growing businesses, he often finds companies whose sales lag a bit but produce large amounts of free cash from investments that compensate for it and produce average per-share earnings growth.
In the first quarter of 2011, Nygren’s top four holdings were Unilever Plc (UL, Financial), Northrop Grumman Corp. (NOC, Financial), Aflac Inc. (AFL, Financial), Fedex Corp. (FDX, Financial).
Unilever Plc (UL)
Unilever Plc is engaged in the manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. Unilever Plc has a market cap of $97.12 billion; its shares were traded at around $32.59 with a P/E ratio of 15.7 and P/S ratio of 1.6. The dividend yield of Unilever Plc stocks is 3.6%.
Nygren bought 1,150,000 million shares of Unilever in the first quarter 2011 at $29.77 per share, adding to the 950,000 shares he bought in the fourth quarter 2010 at $26.69 per share, bringing his total holdings to 2,100,000 shares.
Unilever has managed to maintain growth despite rising commodity costs, weak consumer confidence and very competitive markets. The first quarter of 2011 marked Unilever’s fifth consecutive quarter of solid growth, including underlying sales growth of 4.3%, driven by emerging markets which grew 9.9%. Sales growth in the Americas was slightly negative due to price increases in foods which caused short-term volume reductions.
Net income for 2010 was $6.1 billion, an increase from $5.1 billion in 2009. Earnings per share was down to $2.14 in 2010 from $3.90 per share in 2009, and free cash flow had also declined to $5.0 billion in 2010 from $6.3 billion in 2009. Unilever has $34.6 billion in long-term liabilities and debt, and cash and cash equivalents of $3 billion on its balance sheet. In the first quarter, it raised its dividend by 8.2%.
In his annual letter to investors, Nygren said of Unilever, “Most appealing to us is the 50% of revenue it generates from emerging markets. This gives it the largest percentage among its peers in what have been, and what we believe are likely to continue being, the fastest-growing markets. Despite that, Unilever stock sells at only 13 times projected earnings for 2012, a discount to most of its peers. Unilever stock is down from a high of $38 at the end of 2007 despite EPS increasing about 20%. The stock also has an attractive dividend yield of 3.6%, meaning that owners of Unilever do not need to sacrifice current income to gain exposure to its attractive growth potential.”
Northrop Grumman Corp. (NOC)
Northrop Grumman Corporation is a high technology company providing innovative solutions in systems integration, defense electronics and information technology. Northrop Grumman Corp. has a market cap of $19.02 billion; its shares were traded at around $65.29 with a P/E ratio of 11 and P/S ratio of 0.5. The dividend yield of Northrop Grumman Corp. stocks is 3.1%. Northrop Grumman Corp. had an annual average earnings growth of 11.1% over the past 10 years.
In his investor letter, Nygren says that he received a new security via a spinoff from Northrop Grumman, Huntington Ingalls Industries, its shipbuilding business. Northrop plans to put the $1.4 billion proceeds from the sale toward its $4 billion share repurchase authorization. Oakmark found that Huntington traded at a substantial premium compared to its total capitalization (including debt) to the pretax, pre-interest cash flow it generates. Therefore, they sold out of Huntington and used the shares to increase their Northrop position.
Northrop had free cash flow for 2010 of $1.7 billion. First-quarter 2011 showed free cash outflow from operations of $11 million in the 2011 first quarter compared with an outflow of $558 million in the prior year period, resulting from lower working capital requirements.
Northrop Grumman matches at least two requirements that Nygren said he looked for in his shareholder letter: cash flow from investing and average per share earnings growth. Northrop’s cash outflow from operations loss was offset by $2.7 billion cash flow from investing, bringing total free cash outflow to $242 for the quarter. In 2010, the company had 10-year-record $7.03 earnings per share, increased from $5.37 per share the year prior.
Northrop has cash and cash equivalents of about $7.5 billion on its balance sheet and long-term liabilities and debt of $14.1 billion. It increased its quarterly dividend 6.4% to $0.50 per share – its eighth consecutive annual dividend increase.
Aflac Inc. (AFL)
Aflac Inc. is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries by providing management services and making capital available. Aflac Inc. has a market cap of $22.47 billion; its shares were traded at around $47.79 with a P/E ratio of 8.3 and P/S ratio of 1.1. The dividend yield of Aflac Inc. stocks is 2.5%. Aflac Inc. had an annual average earnings growth of 10.9% over the past 10 years. GuruFocus rated Aflac Inc. the business predictability rank of 3.5-star.
Aflac is seeing record highs in many financial areas. Its free cash flow was $7 billion, up from $6.1 billion the previous year, and earnings per share grew to $4.97 from $3.20. The company has cash and cash equivalents of $3.5 billion. Its long-term liabilities and debt were also at a 10-year record high of almost $90 billion.
Sales in the U.S. increased modestly for the first time in nine consecutive quarters, despite continued economic weakness. The company had after-tax realized investment losses of $376 million as a result of investment derisking activities in the first quarter, compared with losses of $30 million in the 2010 first quarter.
In May, The Business Journals’ 2011 Business of Brands study found Aflac to be the top brand in the health insurance category. It also climbed five places to number 125 on the Fortune 500 list.
In the first quarter 2011, Nygren bought 400,000 Aflac shares for $56.1 per share. He now owns 1,200,000 shares. The stock has declined 17.35% year to date.
FedEx Corp. (FDX)
FedEx Corporation is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. FedEx Corp. has a market cap of $29.56 billion; its shares were traded at around $93.64 with a P/E ratio of 20.8 and P/S ratio of 0.9. The dividend yield of FedEx Corp. stocks is 0.5%. FedEx Corp. had an annual average earnings growth of 1.8% over the past 10 years.
FedEx’s net income was down 3% to $231 million in the quarter ended Feb. 28, 2011 from $239 million a year ago. Year-over-year results were impacted approximately $0.12 per diluted share by unusually severe winter storms and decreased shipping volumes and increased costs. However, yields grew in all transportation segments.
The company has about $6 billion in cash on its balance sheet, and total long-term liabilities and debt of $11 billion. Free cash flow for 2010 was at its second lowest in 10 years at $322, from $294 for 2010.
FedEx has acquired the Indian logistics, distribution and express businesses of AFL Pvt. Ltd, as well as a Mexican domestic package delivery company, which will extend its global reach.
Bill Nygren bought 200,000 shares of FedEx in first-quarter 2011 at $91.98 per share, adding to the 70,000 shares he bought last quarter at $89.97 per share. He now owns 660,000 shares.
To read more about Bill Nygren’s current portfolio, click here.
In the first quarter of 2011, Nygren’s top four holdings were Unilever Plc (UL, Financial), Northrop Grumman Corp. (NOC, Financial), Aflac Inc. (AFL, Financial), Fedex Corp. (FDX, Financial).
Unilever Plc (UL)
Unilever Plc is engaged in the manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. Unilever Plc has a market cap of $97.12 billion; its shares were traded at around $32.59 with a P/E ratio of 15.7 and P/S ratio of 1.6. The dividend yield of Unilever Plc stocks is 3.6%.
Nygren bought 1,150,000 million shares of Unilever in the first quarter 2011 at $29.77 per share, adding to the 950,000 shares he bought in the fourth quarter 2010 at $26.69 per share, bringing his total holdings to 2,100,000 shares.
Unilever has managed to maintain growth despite rising commodity costs, weak consumer confidence and very competitive markets. The first quarter of 2011 marked Unilever’s fifth consecutive quarter of solid growth, including underlying sales growth of 4.3%, driven by emerging markets which grew 9.9%. Sales growth in the Americas was slightly negative due to price increases in foods which caused short-term volume reductions.
Net income for 2010 was $6.1 billion, an increase from $5.1 billion in 2009. Earnings per share was down to $2.14 in 2010 from $3.90 per share in 2009, and free cash flow had also declined to $5.0 billion in 2010 from $6.3 billion in 2009. Unilever has $34.6 billion in long-term liabilities and debt, and cash and cash equivalents of $3 billion on its balance sheet. In the first quarter, it raised its dividend by 8.2%.
In his annual letter to investors, Nygren said of Unilever, “Most appealing to us is the 50% of revenue it generates from emerging markets. This gives it the largest percentage among its peers in what have been, and what we believe are likely to continue being, the fastest-growing markets. Despite that, Unilever stock sells at only 13 times projected earnings for 2012, a discount to most of its peers. Unilever stock is down from a high of $38 at the end of 2007 despite EPS increasing about 20%. The stock also has an attractive dividend yield of 3.6%, meaning that owners of Unilever do not need to sacrifice current income to gain exposure to its attractive growth potential.”
Northrop Grumman Corp. (NOC)
Northrop Grumman Corporation is a high technology company providing innovative solutions in systems integration, defense electronics and information technology. Northrop Grumman Corp. has a market cap of $19.02 billion; its shares were traded at around $65.29 with a P/E ratio of 11 and P/S ratio of 0.5. The dividend yield of Northrop Grumman Corp. stocks is 3.1%. Northrop Grumman Corp. had an annual average earnings growth of 11.1% over the past 10 years.
In his investor letter, Nygren says that he received a new security via a spinoff from Northrop Grumman, Huntington Ingalls Industries, its shipbuilding business. Northrop plans to put the $1.4 billion proceeds from the sale toward its $4 billion share repurchase authorization. Oakmark found that Huntington traded at a substantial premium compared to its total capitalization (including debt) to the pretax, pre-interest cash flow it generates. Therefore, they sold out of Huntington and used the shares to increase their Northrop position.
Northrop had free cash flow for 2010 of $1.7 billion. First-quarter 2011 showed free cash outflow from operations of $11 million in the 2011 first quarter compared with an outflow of $558 million in the prior year period, resulting from lower working capital requirements.
Northrop Grumman matches at least two requirements that Nygren said he looked for in his shareholder letter: cash flow from investing and average per share earnings growth. Northrop’s cash outflow from operations loss was offset by $2.7 billion cash flow from investing, bringing total free cash outflow to $242 for the quarter. In 2010, the company had 10-year-record $7.03 earnings per share, increased from $5.37 per share the year prior.
Northrop has cash and cash equivalents of about $7.5 billion on its balance sheet and long-term liabilities and debt of $14.1 billion. It increased its quarterly dividend 6.4% to $0.50 per share – its eighth consecutive annual dividend increase.
Aflac Inc. (AFL)
Aflac Inc. is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries by providing management services and making capital available. Aflac Inc. has a market cap of $22.47 billion; its shares were traded at around $47.79 with a P/E ratio of 8.3 and P/S ratio of 1.1. The dividend yield of Aflac Inc. stocks is 2.5%. Aflac Inc. had an annual average earnings growth of 10.9% over the past 10 years. GuruFocus rated Aflac Inc. the business predictability rank of 3.5-star.
Aflac is seeing record highs in many financial areas. Its free cash flow was $7 billion, up from $6.1 billion the previous year, and earnings per share grew to $4.97 from $3.20. The company has cash and cash equivalents of $3.5 billion. Its long-term liabilities and debt were also at a 10-year record high of almost $90 billion.
Sales in the U.S. increased modestly for the first time in nine consecutive quarters, despite continued economic weakness. The company had after-tax realized investment losses of $376 million as a result of investment derisking activities in the first quarter, compared with losses of $30 million in the 2010 first quarter.
In May, The Business Journals’ 2011 Business of Brands study found Aflac to be the top brand in the health insurance category. It also climbed five places to number 125 on the Fortune 500 list.
In the first quarter 2011, Nygren bought 400,000 Aflac shares for $56.1 per share. He now owns 1,200,000 shares. The stock has declined 17.35% year to date.
FedEx Corp. (FDX)
FedEx Corporation is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. FedEx Corp. has a market cap of $29.56 billion; its shares were traded at around $93.64 with a P/E ratio of 20.8 and P/S ratio of 0.9. The dividend yield of FedEx Corp. stocks is 0.5%. FedEx Corp. had an annual average earnings growth of 1.8% over the past 10 years.
FedEx’s net income was down 3% to $231 million in the quarter ended Feb. 28, 2011 from $239 million a year ago. Year-over-year results were impacted approximately $0.12 per diluted share by unusually severe winter storms and decreased shipping volumes and increased costs. However, yields grew in all transportation segments.
The company has about $6 billion in cash on its balance sheet, and total long-term liabilities and debt of $11 billion. Free cash flow for 2010 was at its second lowest in 10 years at $322, from $294 for 2010.
FedEx has acquired the Indian logistics, distribution and express businesses of AFL Pvt. Ltd, as well as a Mexican domestic package delivery company, which will extend its global reach.
Bill Nygren bought 200,000 shares of FedEx in first-quarter 2011 at $91.98 per share, adding to the 70,000 shares he bought last quarter at $89.97 per share. He now owns 660,000 shares.
To read more about Bill Nygren’s current portfolio, click here.
